TON Strategy Co annual report, FY2015

Business context and reporting period

The supplied filing is bBooth, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed March 30, 2016. It does not identify TON Strategy Co.; the company and period in the request metadata therefore do not match the filing. This is an annual report, not a standalone Q4 report.

bBooth shifted from mall-based recording kiosks and talent-discovery apps toward NOTIFI, a proposed enterprise messaging and communications platform. In January 2015, it acquired Songstagram and related Qubeey software and assets. The company reported no revenue in either 2015 or 2014.

Financial results and liquidity

Net loss increased year over year, despite lower operating cash use and a lower reported loss per share; weighted-average shares rose to 62.7 million from 41.1 million. The filing attributes much of the higher 2015 general and administrative expense to share-based compensation and amortization of acquired assets. The impairment charge followed management’s conclusion that there were no reliable predictors of future cash flows for relevant intangible and booth-related assets.

Working capital shifted from a $1,691,333 surplus at December 31, 2014 to a $1,062,071 deficit at December 31, 2015. Total assets were $239,814, total liabilities were $2,582,204, and shareholders’ deficit was $2,342,390 at year-end. Operating cash outflow was partly funded by $1,903,242 of financing cash flow, including related-party borrowings.

Third-party notes payable totaled $725,000 and were classified as current, with amounts due on demand or expected to mature within 12 months. Related-party notes had $1,749,784 of principal, less a $398,593 discount, and were reported net at approximately $1.351 million. Most related-party balances were due April 1, 2017; they generally bore 12% interest. The CEO received a senior security interest in substantially all company assets for a secured note.

Material changes, outlook, risks and unusual items

• Business transition and acquisition: Management described NOTIFI as a cloud-based enterprise platform and outlined potential license, subscription, in-app purchase, and data/lead-generation revenue streams. These were proposed sources, not demonstrated revenue.
• Funding and going concern: Management expected expenses to exceed revenue over the next 12 months and said additional debt or equity financing would be needed. The auditor’s report included a going-concern explanatory paragraph, citing recurring losses and uncertainty about the company’s ability to continue. There is no assurance financing will be available on acceptable terms.
• Acquired asset impairment: The filing reports a $1,387,100 aggregate impairment charge. It separately states that acquired Songstagram intangible assets were impaired by $1,104,327 after amortization; confirm the detailed reconciliation of the aggregate charge.
• Equity and dilution: Share-based compensation was $1,623,398 in 2015. At year-end the company had 18,624,129 outstanding options and warrants, excluded from diluted loss per share as anti-dilutive. The CEO and a director received warrants in connection with extending related-party payment terms. The filing reported 63,859,000 common shares outstanding at December 31, 2015 and March 30, 2016.
• Controls and governance: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing inadequate segregation of duties, no CFO and insufficient review, and untimely flow of information to accounting. The independent auditor did not attest to internal-control effectiveness.
• Other risks and events: The filing highlights execution, competition, technology and cybersecurity, third-party supplier, financing, dilution and OTC-market trading risks. It reports no material pending legal proceedings and no off-balance-sheet arrangements. A January 2016 subsequent event gave the company an option to repurchase 9,011,324 shares from former employees and consultants at $0.02 per share on or before April 15, 2016.

Important facts for investors to verify

• Confirm the intended issuer: this filing is for bBooth, Inc., not TON Strategy Co.
• Review the audited financial statements and notes for the impairment-charge reconciliation and acquisition accounting.
• Assess the company’s actual cash needs, subsequent financing, payment status of demand notes, and ability to continue as a going concern.
• Verify the terms, collateral priority, conversion features and potential dilution associated with related-party debt, warrants, options and the share repurchase option.
• Check subsequent filings for NOTIFI’s launch, customer adoption, revenue generation, and progress remediating the disclosed control weaknesses.